My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
For a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-10-01, reported as Act No. 15 of 2024; Gazette of India, Extraordinary; amendments take effect from 1 October 2024. It bears on section 2(22)(f), section 2(22), section 115QA, section 10(34A), section 46A, section 57, section 194, section 48 of the Income Tax Act 1961, in Capital Gains, Capital Gains Exemptions, TDS Defaults and How Tax Law Is Read matters.
The shift is not a rate change, it is a change of taxpayer and of head of income. The company that used to bear a flat 20 per cent now bears nothing; the shareholder who used to receive a tax-free receipt now has dividend income taxed at slab or applicable rates with tax deducted under s.194, and separately a capital loss equal to his cost that can only be set off against capital gains under the ordinary s.70/s.74 rules. Two traps follow. First, s.57 was amended so that the interest deduction otherwise available against dividend income is not available against s.2(22)(f) dividend — the consideration is taxed gross. Second, everything turns on the date the buy-back 'takes place', and both new provisos are worded by reference to that date and not to the date of the board resolution, the public announcement or the payment; a buy-back straddling 1 October 2024 needs that date pinned down on the record. Any advice, article or precedent that still describes buy-back as company-level tax under s.115QA with an exemption under s.10(34A) is describing the position for buy-backs up to 30 September 2024 only.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
The Finance (No. 2) Act 2024 received the assent of the President on 16 August 2024. With effect from 1 October 2024 it (i) inserts sub-clause (f) after sub-clause (e) and before the long line in clause (22) of section 2, bringing within 'dividend' any payment by a company on purchase of its own shares from a shareholder in accordance with section 68 of the Companies Act 2013; (ii) inserts a proviso to section 10(34A) so that the exemption for income arising to a shareholder on buy-back does not apply to any buy-back on or after that date; (iii) inserts a further proviso to section 115QA(1) so that the company-level additional income-tax at 20 per cent does not apply to any buy-back that takes place on or after that date; (iv) inserts a proviso to section 46A deeming the value of consideration received by a shareholder to be nil where he receives consideration of the nature described in section 2(22)(f) in respect of a buy-back on or after that date; and (v) amends section 57(i) so that the deduction available 'in the case of dividends' does not extend to dividend referred to in section 2(22)(f). The department's current section 194 page carries the words 'or sub-clause (f)' in the list of deemed dividends from which tax is to be deducted at 10 per cent, footnoted to Act No. 15 of 2024 with effect from 1 October 2024, and shows the individual-shareholder threshold in the first proviso raised from five thousand to ten thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025.
Statutory position — no holding is asserted; this entry reproduces statutory text. For a buy-back of shares taking place on or after 1 October 2024 the charge moves from the company to the shareholder. The whole consideration is dividend under section 2(22)(f); the section 10(34A) exemption and the section 115QA company-level charge are both switched off by their new provisos; the value of consideration for section 46A is deemed nil, so that section 46A read with section 48 produces a capital loss equal to the cost of acquisition; and the section 57 deduction in the case of dividends does not extend to this income.
The mechanism is entirely textual and there is no judicial gloss on it yet. Sub-clause (f) is placed inside the inclusive definition of 'dividend', so every consequence that attaches to dividend attaches to buy-back consideration — chargeability under the head income from other sources, deduction of tax at source under section 194, and the section 57 rules on deductions, which is why section 57(i) had to be amended to carve this income out. The capital-gains route is not closed but neutralised: section 46A continues to apply to a buy-back, but with the consideration deemed nil the computation under section 48 yields cost of acquisition as a loss rather than a gain. The section 115QA proviso and the section 46A proviso are both drafted by reference to a buy-back 'that takes place on or after the 1st day of October, 2024', while the section 10(34A) proviso is drafted by reference to 'any buy back of shares by a company on or after the 1st day of October, 2024'; on either wording it is the date of the buy-back itself, and not the date of any earlier corporate step, that is the operative fact.
(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013;
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppFor a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 2(22)(f), section 2(22), section 115QA, section 10(34A), section 46A, section 57, section 194, section 48 of the Income Tax Act 1961. It is reported as Act No. 15 of 2024; Gazette of India, Extraordinary; amendments take effect from 1 October 2024. The shift is not a rate change, it is a change of taxpayer and of head of income. The company that used to bear a flat 20 per cent now bears nothing; the shareholder who used to receive a tax-free receipt now has dividend income taxed at slab or applicable rates with tax deducted under s.194, and separately a capital loss equal to his cost that can only be set off against capital gains under the ordinary s.70/s.74 rules. Two traps follow. First, s.57 was amended so that the interest deduction otherwise available against dividend income is not available against s.2(22)(f) dividend — the consideration is taxed gross. Second, everything turns on the date the buy-back 'takes place', and both new provisos are worded by reference to that date and not to the date of the board resolution, the public announcement or the payment; a buy-back straddling 1 October 2024 needs that date pinned down on the record. Any advice, article or precedent that still describes buy-back as company-level tax under s.115QA with an exemption under s.10(34A) is describing the position for buy-backs up to 30 September 2024 only. If it applies to you, the first step is this: Fix the date the buy-back 'took place' from the primary record — the date the shares were extinguished under s.68 of the Companies Act 2013 and the return of buy-back — and keep that document on file, because both provisos hinge on it.
The Finance (No. 2) Act 2024 received the assent of the President on 16 August 2024. With effect from 1 October 2024 it (i) inserts sub-clause (f) after sub-clause (e) and before the long line in clause (22) of section 2, bringing within 'dividend' any payment by a company on purchase of its own shares from a shareholder in accordance with section 68 of the Companies Act 2013; (ii) inserts a proviso to section 10(34A) so that the exemption for income arising to a shareholder on buy-back does not apply to any buy-back on or after that date; (iii) inserts a further proviso to section 115QA(1) so that the company-level additional income-tax at 20 per cent does not apply to any buy-back that takes place on or after that date; (iv) inserts a proviso to section 46A deeming the value of consideration received by a shareholder to be nil where he receives consideration of the nature described in section 2(22)(f) in respect of a buy-back on or after that date; and (v) amends section 57(i) so that the deduction available 'in the case of dividends' does not extend to dividend referred to in section 2(22)(f). The department's current section 194 page carries the words 'or sub-clause (f)' in the list of deemed dividends from which tax is to be deducted at 10 per cent, footnoted to Act No. 15 of 2024 with effect from 1 October 2024, and shows the individual-shareholder threshold in the first proviso raised from five thousand to ten thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025. The matter was decided on 2024-10-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. For a buy-back of shares taking place on or after 1 October 2024 the charge moves from the company to the shareholder. The whole consideration is dividend under section 2(22)(f); the section 10(34A) exemption and the section 115QA company-level charge are both switched off by their new provisos; the value of consideration for section 46A is deemed nil, so that section 46A read with section 48 produces a capital loss equal to the cost of acquisition; and the section 57 deduction in the case of dividends does not extend to this income.
The mechanism is entirely textual and there is no judicial gloss on it yet. Sub-clause (f) is placed inside the inclusive definition of 'dividend', so every consequence that attaches to dividend attaches to buy-back consideration — chargeability under the head income from other sources, deduction of tax at source under section 194, and the section 57 rules on deductions, which is why section 57(i) had to be amended to carve this income out. The capital-gains route is not closed but neutralised: section 46A continues to apply to a buy-back, but with the consideration deemed nil the computation under section 48 yields cost of acquisition as a loss rather than a gain. The section 115QA proviso and the section 46A proviso are both drafted by reference to a buy-back 'that takes place on or after the 1st day of October, 2024', while the section 10(34A) proviso is drafted by reference to 'any buy back of shares by a company on or after the 1st day of October, 2024'; on either wording it is the date of the buy-back itself, and not the date of any earlier corporate step, that is the operative fact. In the words reproduced by the source cited on this page: "(f) any payment by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 68 of the Companies Act, 2013;"
It was decided by the CBDT Circulars & Instructions on 2024-10-01 and is reported as Act No. 15 of 2024; Gazette of India, Extraordinary; amendments take effect from 1 October 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 2(22)(f), section 2(22), section 115QA, section 10(34A), section 46A, section 57, section 194, section 48, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. For a buy-back of shares taking place on or after 1 October 2024 the charge moves from the company to the shareholder. The whole consideration is dividend under section 2(22)(f); the section 10(34A) exemption and the section 115QA company-level charge are both switched off by their new provisos; the value of consideration for section 46A is deemed nil, so that section 46A read with section 48 produces a capital loss equal to the cost of acquisition; and the section 57 deduction in the case of dividends does not extend to this income. It arises in Capital Gains, Capital Gains Exemptions, TDS Defaults and How Tax Law Is Read matters, on section 2(22)(f), section 2(22), section 115QA, section 10(34A), section 46A, section 57, section 194, section 48 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a buy-back on or after 1 October 2024, show the entire consideration as dividend income in the shareholder's return; do not net off cost against it. Separately compute capital gains under s.46A taking the value of consideration as nil, so the indexed or actual cost of the shares emerges as a capital loss, and carry that loss forward under s.74 if there is nothing to set it against. Do not claim interest or any other deduction under s.57 against the buy-back dividend: clause (i) was amended to exclude s.2(22)(f) dividend, and a further proviso to s.57 separately bars any deduction against income of that nature. Check the company's TDS: s.194 now reads 'or sub-clause (f)' and requires deduction at 10 per cent from a resident shareholder, and reconcile the Form 26AS credit with the amount you have offered. For a buy-back completed on or before 30 September 2024, keep the old treatment — s.115QA tax paid by the company and s.10(34A) exemption for the shareholder — and say so expressly in the computation so the two regimes are not mixed.
Still good law. This is the amending law itself, not a decision about it. The section 46A proviso and the section 194 cross-reference to sub-clause (f) were each read from a departmental section page carrying a current 'Year: 2026' stamp, and the sub-clause (f) text was read from the Gazette version of the Act and independently from the Bill. No decided case applying section 2(22)(f) was located: an Indian Kanoon search for buy-back, deemed dividend and 'first day of October, 2024' returned nil. The department's own section 2 and section 115QA pages are archived versions and were not used to state the current position. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Three points of caution. (1) s.115QA was NOT deleted from the statute book — the Act inserts a further proviso to s.115QA(1) disapplying it to buy-backs on or after 1 October 2024, so the section still governs earlier buy-backs and the litigation about them. Descriptions of the section as 'abolished' or 'omitted' are shorthand, not the text. (2) The Finance (No. 2) Bill 2024 as introduced contained no amendment to s.194, and two separate passes over the Bill and the Gazette text of the Act did not surface one; but the department's current s.194 page (stamped Year 2026) prints the words 'or sub-clause (f)' with footnote 'Ins. by Act No. 15 of 2024, w.e.f. 1-10-2024'. The TDS obligation is therefore stated from the departmental section page, not from a clause of the Act that this pass could read. (3) The Act amends s.57 twice: its section 24(a) inserts into clause (i), after the words 'in the case of dividends,', the words 'other than that referred in sub-clause (f) of clause (22) of section 2', and its section 24(c) inserts a further proviso, 'Provided further that no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2.' Both were read from the Gazette text and confirmed against an independent full-text copy of the enacted Act. The bar is therefore not confined to the clause (i) deduction: no deduction at all is allowed against s.2(22)(f) dividend. The department's /w/section-2 pages are archived (one stamped 1988, one 2016) and carry no sub-clause (f) at all — they must not be used to read the current definition. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. For a buy-back of shares taking place on or after 1 October 2024 the charge moves from the company to the shareholder. The whole consideration is dividend under section 2(22)(f); the section 10(34A) exemption and the section 115QA company-level charge are both switched off by their new provisos; the value of consideration for section 46A is deemed nil, so that section 46A read with section 48 produces a capital loss equal to the cost of acquisition; and the section 57 deduction in the case of dividends does not extend to this income.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
I sold a depreciable asset held for over three years. Can I still claim the capital gains exemption?
The AO says I sold below market value and wants to tax the difference. Can he do that?
My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?